Who doesn’t want to save tax! Tax planning and investment in tax-efficient products can help you save a significant amount of money but it’s important to remember that saving is personal to each individual depending on the factors such as your expenditure, how much disposable income you have after meeting all necessary expenses, the size of your family and other factors.
Under Income Tax Act, 1961, an individual can invest their money up to certain limits and be entitled to certain benefits like deduction under sections 80C or 80D for example. Saving for the long-term is not only about what’s taxable but also about investing in a way that is sustainable for your future goals. It’s crucial not just because it helps with your tax planning but because it enables you to take control over your financial future.
Section 80C of the Income Tax Act is the most widespread tax-saving option accessible to individuals and HUFs in India. This section requires a mixture of activities, including sections 80CCC and 80CCD. You can claim the amount as a tax benefit from your taxable amount for the last financial year if you want to use your income in some of these activities during the last fiscal year.
5 Year Bank Fixed Deposit
Deposit accounts are a popular option among investors, as they are federally insured and offer fairly high rates of interest currently. Banks and credit unions offer FDs as an investment option, usually in terms of making monetary deposits over a period of time to earn the current annual interest rate.
FDs are funds that can be invested for a period up to 5 years and generally offer a better interest rate than regular savings accounts. They are easy to operate because they are FDIC approved and hence eligible for tax saving investments under section 80C of the Indian IT act. Make sure to shop around and check out which is the best offering among your options; this may vary from one bank to another as well as from one financial institution to another.
National Saving Certificate (NSC)
An NSC or National Savings Certificate is a tax investment mainly backed by the Indian government. The investment is easily available at all post offices, and this means that making several purchases at once could give you better total savings.
Because it’s sponsored by the Indian government, the is quite minimized for this type of certificate, which also makes it safer to invest in. It’s only available for Indian nationals, not non-residents or businesses run by non-resident Indians.
The interest rate gets compounded every year which provides significant savings on your money through an NSC over even other saving schemes. With an NSC, a deduction up to Rs 1.5 lakh can be set aside as per tax laws and exemptions applicable to each individual income bracket.
Unit-Linked Insurance Plan (ULIP)
A ULIP is like drinking out of two glasses at once: the left glass consists of investing in stocks or bonds, and the right glass consists of insuring a specific duration.
A mix of both investment protection as well as insurance is a very popular product among tax savvies as it helps maximize returns by lending security. This option needs policyholders to pay premiums on a regular basis.
Part of the premiums are used to cover insuring costs, while the rest goes into stocks, bonds, or a combination of both. Since ULIP premiums are eligible for deductions up to Rs 1.5 lakh per financial year under Section 80C of income tax act 1961, a majority of investors pick this option over other forms of mutual funds and/or insurance schemes to maximize benefits.
Furthermore, under section 10D a fixed amount of money is awarded in the form of maturity amount for every unit held. This amount is tax exempt, which means that it won’t be taxed at all – not just the interest earned on your initial investment but also any gains.
Senior Citizen Saving Scheme (SCSS)
If you are 60 years or older, there’s an easy way to save for your retirement with the SCSS account. This Post Office scheme lets you put aside up to Rs. 15 lakhs and earn great interest payments quarterly.
If you open an account at any of the participating banks in association with the Indian Post office, not only are your contributions made through them tax-deductible under Section 80C of the Income Tax Act (like they would be if you had deposited them in a bank), but more importantly, these deposits earn increased interest compared to the average saving account interest rate.
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